Absence of local LNG market dims allure of oil exploration activities

The refusal of the Ceylon Electricity Board (CEB) to tender liquefied natural gas (LNG) power plants may cost the country over US $ 1 billion in investment into the development of offshore gas fields over the next three years, in addition to further investment in the future, Mirror Business learns.

Representatives from international petroleum companies have been visiting Sri Lanka recently to attend pre-bid meetings for offshore oil and gas exploration and distribution but are viewing the lack of a domestic market for LNG as a deal breaker, a top official told Mirror Business.

The international players have been expecting the government to share the risk by purchasing a majority of the natural gas for domestic use, since the country’s approved Least Cost Long-Term Generation Expansion Plan has planned to shift Sri Lanka’s power generation towards a mix dominated by LNG and renewable over the next 20 years, due to the lower environmental footprint. The CEB top management, which is also in the employee trade union, is opposed to the construction of LNG power plants and is refusing to sit on tender boards to award the first LNG tender for a 300MW power plant in Kerawalapitiya.

Currently, two wells have been discovered in the offshore ‘M2’ block in the Mannar Basin and the government is currently discussing the opening of a new bidding round for this block and to explore and develop some of the other 13 blocks in the Mannar and Cauvery Basins. 

Based on the initial studies on the discovered wells and regional studies, the Petroleum Resource Development Secretariat (PRDS) is estimating the Mannar Basin alone could have the potential to generate five billion barrels of oil and nine trillion cubic feet of natural gas, which would be sufficient for Sri Lanka’s energy needs for the next 60 years.

This is in addition to the more than two trillion cubic feet of natural gas and 10 million barrels of condensate discovered in the two wells in the M2 block. The PRDS is expecting the M2 block alone to generate foreign direct investments of around US $ 1 billion by 2021.

The CEB is in favour of constructing more coal power plants. Currently, generating coal power costs Rs.14.60 per unit, while generating power via LNG would cost Rs.14.99 per unit based on the LNG power plant tender. However, when taking into account the externalities, the cost is in favour of LNG.
The regulator-approved plan calls for 4,800MW of LNG power generation over the next 20 years. China has reserved 400MW of this by pledging to build a power plant in Hambantota in a government-to-government deal, which bypasses the CEB tender process. 

India and Japan have partnered to build an LNG terminal in Kerawalapitiya to facilitate the 300MW LNG plant currently stuck in the tender process, as well as the existing 300MW oil-fired power plant, which is expected to be converted to LNG. (CW)